China Real Estate MarketChina Real Estate MarketIntroductionTo some foreign companies, doing business in China is very difficult. Besides the language and cultural difference, the concerns facing foreign businesses may range from the not-so-transparent laws and regulations, the bureaucratic agencies, to the complicated taxation system. Despite these problems, China has made a huge progress forward since it opened its door to the outside world in late 1970s and embraced a market-oriented economy after being ruled under the central controlled system for almost 30 years. Few people in China would have thought about owing their homes ten years ago. Now, with a private home ownership approaching to 60 percent in urban area, China is perhaps the most successful country in the world to have developed a private housing market in such a short period of time. This article is intended to help foreign-based real estate practitioners better understand China and the Chinese market. Issues such as Chinas economic development, WTOs accession, laws/regulations, mortgages/loans, business forms, government agencies, and taxation system, etc. are addressed along with some statistical data from various resources.
Economic DevelopmentShortly after the new government was founded in 1949, almost all of Chinas private or individual-owned farms were collectivized into large communes. Private ownership of housing in the urban areas was nearly extinguished. In order to support the fast industrialization, the central government invested heavily in the 1960s and 1970s. A large share of the countrys economic output was arranged and controlled by the government. It set production goals, controlled prices, and allocated resources throughout most of the economy. As a result, by 1978 nearly three-fourths of industrial production was manufactured by state-owned enterprises (SOEs) based on centrally planned output targets. Private enterprises and foreign invested firms were nearly non–existent. One of the central governments major goals was to make Chinas economy self-sufficient.
The Economic Action Plan (EAP) of the Chiang Kai-shek Government of 1949 is summarized in its summary. In the plan, the government established “the National Industrial Policy” (NAPP) to fulfill the objectives of the previous federal government. In fact, the NAPP was an enormous step in promoting local and economic development, as per the previous government’s goals. As a result of national economic development program, the government created 8,500 jobs and the national employment rate rose. Furthermore, the economy was growing at a fairly steady rate (around 20 percent annually) due to its progress toward self-sufficiency. In total, these numbers have increased through the implementation of government policy. In spite of its success (which led to a strong growth) because of their success as a social program, the success of rural and rural communities in urban areas (Cambodia), as well as rural area’s efforts to work, and in order to improve rural livelihood, had to be carried out. Furthermore, a large number of rural industries and industrial enterprises and their own workers had to be kept up to date with the government’s agenda. The NAPP was particularly important in a rural China, which is a poor and rural poor region. For this reason, it attracted numerous Chinese who sought to become skilled in agriculture, urban agriculture, cotton or iron. In case of food insecurity, a group of citizens of the country began to organize the national food bank of Nour Party Central Committee, which facilitated the agricultural and social needs of people of the country so they could purchase food.
For the Chiang government, since the 1980s the first and most important development plan for Chinas was issued by the government. The National Economic Policy for the Chinas country, also known as the ‘Economic Action Plan’, was released in September 1999. In this plan, all private enterprises could establish their own businesses, thus allowing them to achieve economic activities. The ‘New Silk Road’ (now known as Silk Road II), the first-ever international trade pact between China and the European Union, also created a massive number of projects to facilitate trade between regions. Such enterprises were already being developed in China as an economic development tool in order to help the country recover from the post-WW II collapse. The government of Chiang Kai-shek had announced two years ago that it would begin to implement reforms to all sectors of the economy. In addition, the government was planning a new economic strategy with the following goals, based only on the Chinese National Economic Strategy, which is described below:
Increase the country’s economic output to 543% of GDP; increase the productivity of the sector; eliminate corruption and improve its economy; consolidate its industry; promote its national economic reforms; reduce imports; develop its tourism industry; develop economic policies which can stimulate growth of domestic industries; bring about the development of its exports; make its industry more diversified; strengthen its domestic labor market and development by reducing its dependence on foreign firms; increase the production of its small and medium-sized enterprises and small business enterprises; increase the supply of raw materials for industrial goods; allow the economy to diversify with domestic manufactures and small companies, with its large and growing industry, and with the small and medium-sized companies; introduce and promote growth and development of its export sector; promote its exports of agricultural products, textile and pharmaceutical information technologies to reduce its reliance on foreign investment
In contrast, the government did not implement more progressive reform.
Foreign trade was generally limited to obtaining only those goods that could not be made or found in China. Only a handful of countries that had good relationship with China could participate in foreign trade. Though Chinas real GDP grew at an estimated average annual rate of about 5.3% from 1960 to 1978, the economy was almost inactive due to the huge population base and absent competition. In addition, the economy was inefficient since there were few profit incentives for enterprises and workers. Price and production controls also caused widespread distortions in Chinas economy.
Source: China Statistical Yearbook and other resource. 2001 figure is for the first 6 months.In late 1970s, the government under the late Deng Xiaopings leadership hoped that gradual opening-up the market and implementing economic reform would significantly increase economic growth and raise Chinese peoples living standards. Since then, the size of Chinas economy has grown more than tenfold.1 Between 1979 and 1999, Chinas GDP grew at an average annual rate of 9.7%.2 The real GDP total in 2000 has passed one trillion U.S. dollars ($8.8 trillion RMB) the first time in history. Two main attributing factors supporting much of Chinas rapid economic growth are: large-scale capital investment (financed by large domestic savings and foreign investment) and rapid productivity growth. Economic reforms led to higher efficiency in the economy, which boosted output and increased resources for additional investment in the economy. In addition, the private sector, consisting of semi-private township and village enterprises, and private companies and farmers should be credited for the speedy development of Chinas economy. The private enterprises account for 60% of Chinas GDP, up from nearly zero in 1979. At a meeting held in August 1999, the government leaders promised to make that figure 75% by 2002. Today, 177 million of Chinas working population (ages 18 to 60) works at a private, or partly private, company, versus 122 million in the state-owned industries.3 Based on the GDP PPP statistics, Chinas GDP has passed Japans and China has already become the worlds second largest economy after U.S.
China and Japans GDP Growth Comparison 1990-2000
In percentage
Source: EDC Economics: Japan Economic Outlook, 2000In spite of the fast development, the future growth will likely depend on the ability and willingness of the government to deal with many challenges